ComCom recommends regulation of MTRs

Forums › ICT Policies and Regulation › ComCom recommends regulation of MTRs

walt12

324 posts

Ultimate Geek

#61209 12-May-2010 08:59

08:49 12May10 NZXR-COMCOM: CCOM: Commerce Commission recommends regulation <CCOM.NZ>
CCOM
12/05/2010
COMCOM

REL: 0848 HRS Commerce Commission

COMCOM: CCOM: Commerce Commission recommends regulation

Media Release

Issued 12 May 2010/no 108

Commerce Commission recommends regulation of mobile termination access
services in draft report

In a draft reconsideration report issued today, the Commerce Commission has
indicated that its preliminary view is to recommend that the Minister for
Communications and Information Technology regulate mobile termination access
services, and not accept undertakings from Telecom and Vodafone.

Following the Commission's final report released in February 2010 Vodafone
announced a new Talk Add-on product. The Minister then requested that the
Commission reconsider its earlier recommendation that Telecom and Vodafone's
final undertakings should be accepted in light of that and any other relevant
retail offers released since the Commission's final report.

The Commission's preliminary view in this reconsideration is that, in light
of the new Talk Add-on plan, the mobile termination rates contained in the
final undertakings offered by Vodafone and Telecom will not address the
competition concerns identified by the Commission during its mobile
termination access services (MTAS) investigation.

"The on-net retail pricing component of Vodafone's new Talk Add-on plan,
offered since the final MTAS report, perpetuates the barrier to expansion
that the final undertakings, if accepted by the Minister, were designed to
remove," said Dr Ross Patterson, Telecommunications Commissioner.

"While lower retail prices are generally good for consumers, the competition
concern which arises in relation to the Talk Add-on plan is the combination
of low on-net retail prices and above-cost wholesale mobile termination rates
which creates a barrier to efficient expansion by a new entrant," said Dr
Patterson.

"In light of such developments, the Commission's preliminary view is that if
cost-based mobile termination rates were put in place, then all mobile
operators would be able to vigorously compete in the retail market and
provide consumers with competitive and innovative calling products," said Dr
Patterson.

"Our preliminary view is that the introduction of Vodafone's Talk Add-on plan
is evidence that the assumptions made by Commissioner Gowan Pickering and me
in the Commission's final report, in respect of Vodafone's future behaviour,
have been undermined. As a consequence, the conclusion that 'the competition
concerns identified by the Commission would be addressed in a timely manner
by acceptance of the final undertakings', which was based on those
assumptions, cannot stand," said Dr Patterson.

The Commission is now inviting submissions on the draft reconsideration
report. Submissions are due with the Commission by 5pm on 19 May 2010.

The Commission's draft reconsideration report and associated documents are
all available on the Commission's website at
www.comcom.govt.nz/mobiletomobiletermination

Indicative Timeline for Reconsideration Process

MILESTONE DATE
Draft Reconsideration Report released 12 May 2010
Submissions on Draft Reconsideration Report due 5pm 19 May 2010
Cross-submissions due 5pm 26 May 2010
Final Reconsideration Report delivered to Minister Early June 2010

Background

Mobile termination prices are the wholesale charges mobile phone companies
charge for
terminating calls or texts from other fixed or mobile networks.

Undertakings. Under the Telecommunications Act 2001, parties can submit
undertakings, which are an offer of terms and conditions for the supply of a
service as an alternative to regulation.

Requirements of the Telecommunications Act. The Act requires that the
Commission makes a recommendation which best promotes competition for the
long-term benefit of end users.

Reconsideration of Commission's recommendations. Under clause 6(2)(b) of
Schedule 3 of the Act, the Minister can require the Commission to reconsider
its recommendation or any aspect of its recommendation, for any reasons
specified by the Minister.

MTAS investigation. On 6 November 2008 the Commerce Commission commenced an
investigation under Schedule 3 of the Act into mobile termination access
services (MTAS). The MTAS incorporates mobile-to-mobile voice termination
(MTM), fixed-to-mobile voice termination (FTM) and short-message service
termination (SMS). The investigation considered whether these services should
become regulated services under Schedule 1 of the Act.

On 22 February 2010 the Commission recommended that the Minister accept
undertakings from Telecom and Vodafone as an alternative to regulation.

In April 2010 Vodafone launched a new Talk Add-on product offering up to 200
minutes to Vodafone New Zealand mobiles and landlines for $12 a month for
certain pre-pay plans. This plan is promoted on Vodafone's website as "just 6
cents a minute to Vodafone NZ mobiles and landlines in New Zealand".

In April 2010, the Commission invited the Minister to take account of this
new Vodafone product, Talk Add-on, in his assessment of whether Telecom's and
Vodafone's final undertakings should be accepted, or whether it was
appropriate to request the Commission to reconsider its recommendation in
light of the potential impact of Vodafone's new Talk Add-on product. The
Minister then requested that the Commission reconsider its earlier
recommendation that Telecom and Vodafone's final undertakings should be
accepted.

On 27 April 2010 the Commission announced its process for reconsidering its
recommendation following a request from the Minister for Communications and
Information Technology under the Telecommunications Act 2001.

The Minister requested that the Commission consider the implications, if any,
of any relevant retail offers on the Commission's recommendation that the
Minister accept the undertakings put forward by Telecom and Vodafone. Retail
offers to be considered are those that have been released since the
Commission sent its report to the Minister on 22 February 2010, or that may
be released before the Commission finalises its reconsidered recommendation.

Media contact:
Felicity Connell, Senior Communications Adviser
Phone work (04) 924 3709, mobile 021 225 4454

Commission media releases can be viewed at www.comcom.govt.nz
End CA:00194793 For:CCOM   Type:COMCOM     Time:2010-05-12:08:49:01

For Related News, Double Click on one of these codes:[NSE] [ASIA] [NZ] [LEN] [NZXR] [CCOM.NZ]
For Relevant Price Information, Double Click on one of these codes:<CCOM.NZ>
Wednesday, 12 May 2010 08:49:10NZXR [nNZS4q2a] {EN}ENDS

1 | 2

324 posts

Ultimate Geek

#329222 12-May-2010 09:07

In summary, Vodafone cooked its goose on this one. It seems inevitable that we will have regulated MTRs before long. I wonder whether 2degrees is preparing a statement?

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

sbiddle

30853 posts

Uber Geek

Retired Mod

Trusted

Biddle Corp

Lifetime subscriber

#329223 12-May-2010 09:36

I in no way believe Vodafone did anything wrong - their plans represented nothing new and should have had no impact at all on the undertakings. Even the visiting OECD telco expert who was in NZ last month actually expressed surprise that we were paying for on-net calls as free or all inclusive on-net calling has become the norm in many countries.

Why to the Commission believe cheap on-net deals are anti competitive when they are now becoming very much the norm elsewhere? Are the Commission infact being anti-competive themselves by engaging in an act that is keeping prices higher than they should be?

What it does show is the total lack of understanding from the Commission when it comes to the marketplace and their clear inability when it comes to making the tough decisions that need to be made. Their inquiry focused on everything but retail pricing - with several key areas including whether on-net calling was anti-competitive. It seems they've now decided this should be the core focus of the whole MTAS investigation.

The Commission made it very clear towards the end of last year that they saw an industry lead solution as the best one. They put clear guidelines in place that they expected the carriers to meet and knocked them back numerous times until what was believed to be an acceptable agreement was put on the table.

It's very clear now that the Commission were doing nothing but trying to play childish games...

For the record my money has been on regulation since last September despite the fact I strongly disagree with the concept.

gmball

541 posts

Ultimate Geek

#329229 12-May-2010 09:53

Obviously just very very bad timing from Vodafone on the release of the Talk add on product, not to mention that once again On account customers are in the lurch waiting for a competitive onaccount offering. Where has the loyalty gone?

sbiddle

30853 posts

Uber Geek

Retired Mod

Trusted

Biddle Corp

Lifetime subscriber

#329236 12-May-2010 10:27

gmball: Obviously just very very bad timing from Vodafone on the release of the Talk add on product, not to mention that once again On account customers are in the lurch waiting for a competitive onaccount offering. Where has the loyalty gone?

Well the Commerce Commission have effectively sent the message out that their plan is anti-competitive. I think it would be great if Vodafone took out a billboard telling customers they can't give them cheaper rates because the Commerce Commission won't let them!

The following may be of some interest. It is an extract from the Commission in March last year

On-net / off-net price discrimination
The Commission notes that NZ Comms’ undertaking contains clauses preventing discrimination between on-net and off-net pricing, and that Vodafone submitted that NZ Comms’ undertaking takes away a significant marketing tool through which mobile network operators can differentiate their product offerings and compete with each other, and may be anti-competitive.1
The Commission considers that undertakings may contain terms that prevent discrimination between on-net and off-net pricing, and will consider the likely implications of any such terms in the draft report.
However, the Commission’s preliminary view is that, provided MTAS prices are cost-based, non-discrimination provisions are not required to ensure a competitive market in the interests of the long-term benefits of end-users.

In March 2009 they also wanted to sort things out quickly - how long can this drag on for?

The Commission considers that acceptable undertakings are a desirable outcome in relation to MTAS and that this matter needs to be resolved on a timely basis. Therefore, the Commission does not intend to allow parties more than one opportunity to submit revised undertakings, and expects to move promptly to recommend either:
a. that some or all of any revised undertakings be accepted, if they do offer sufficient reductions in prices (including the effect of any non price terms) towards the benchmarked levels that the Commission has identified; and/or
b. proposed regulatory changes, if any revised undertakings do not offer sufficient reductions in price (including the effect of any non price terms) towards the benchmarked levels that the Commission has identified.
In determining the process to be followed, the Commission has considered

The Commission seem as indecisive as Winston Peters when it comes to deciding what political party he was going to side with!

Behodar

9249 posts

Uber Geek

Trusted

Lifetime subscriber

#329244 12-May-2010 10:51

On-net / off-net price discrimination
The Commission notes that NZ Comms’ undertaking contains clauses preventing discrimination between on-net and off-net pricing, and that Vodafone submitted that NZ Comms’ undertaking takes away a significant marketing tool through which mobile network operators can differentiate their product offerings and compete with each other, and may be anti-competitive.1
The Commission considers that undertakings may contain terms that prevent discrimination between on-net and off-net pricing, and will consider the likely implications of any such terms in the draft report.
However, the Commission’s preliminary view is that, provided MTAS prices are cost-based, non-discrimination provisions are not required to ensure a competitive market in the interests of the long-term benefits of end-users.

Thanks for posting that. Incredible, really.

pwner

419 posts

Ultimate Geek

Trusted

2degrees

#329245 12-May-2010 10:52

sbiddle: I in no way believe Vodafone did anything wrong - their plans represented nothing new and should have had no impact at all on the undertakings. Even the visiting OECD telco expert who was in NZ last month actually expressed surprise that we were paying for on-net calls as free or all inclusive on-net calling has become the norm in many countries.

Why to the Commission believe cheap on-net deals are anti competitive when they are now becoming very much the norm elsewhere? Are the Commission infact being anti-competive themselves by engaging in an act that is keeping prices higher than they should be?

What it does show is the total lack of understanding from the Commission when it comes to the marketplace and their clear inability when it comes to making the tough decisions that need to be made. Their inquiry focused on everything but retail pricing - with several key areas including whether on-net calling was anti-competitive. It seems they've now decided this should be the core focus of the whole MTAS investigation.

The Commission made it very clear towards the end of last year that they saw an industry lead solution as the best one. They put clear guidelines in place that they expected the carriers to meet and knocked them back numerous times until what was believed to be an acceptable agreement was put on the table.

It's very clear now that the Commission were doing nothing but trying to play childish games...

For the record my money has been on regulation since last September despite the fact I strongly disagree with the concept.

While i could debate the pros and cons of MTRs and their levels and regulation till the cows come home. I think the main issue was that the commerce commision were looking into the ability for competition to grow in the new zealand market. to do this they focused on MTRs, if this was the right avenue is irellevent as the path has already been chosen. So if you are looking at if from the more holistic approach of trying to grow competition, when a player with significant market power and the majority of subscribers makes on net calling orders of magnitude cheaper than off net calling, they are reducing the ability of other networks especially new entrants to compete in the market place. yes networks such as 2degrees could offer free on net calling, this could easily be countered by the incument but then it has removed any competition and customers are not going to move as they would have equal offers from both networks, that being free on-net calling. meanwhile for a Vodafone customer to call a 2degrees customer will be infinately higher cost (divide by zero) than calling a person on Vodafone anyone on 2degrees would be seperated from the majority of the population. The end result is that networks other than the largest in market share would struggle to increase their market share while maintaining the revenue to justify the investment and you would end up with the other networks dying off. at this point you have a monopoly and they can easily change their prices back up to 89c per minute or higher.

Hence MTRs should be cost based and as per the commisions own statement would reduce the need for regulation of on-net/off-net calling plans.

Any posts are personal comments and not that of my employer

JonC

425 posts

Ultimate Geek

#329252 12-May-2010 11:03

sbiddle: ...

Why to the Commission believe cheap on-net deals are anti competitive when they are now becoming very much the norm elsewhere? Are the Commission infact being anti-competive themselves by engaging in an act that is keeping prices higher than they should be?
...

Well, to answer your question here, on-net deals encourage users to call other people on the same network. This encourages friends to cluster together on the same network. So if I'm Joe Bloggs without a cell-phone and all my mates are on VF, I'll look at the prices and decide to buy a VF mobile because it's much cheaper. This is fine for VF and TCom who have large subscription bases already and in this situation will expand (unless for some reason, people on TCom tend to have fewer friends

). But newcomer telcos like 2Degrees won't get that natural expansion as people are more likely to have a large group of friends on TCom or VF.

Whether or not MTR regulation is useful as a method of reducing on-net deals is a whole different question.

EDIT: pwner said basically the same thing... too slow.

Linuxluver

5824 posts

Uber Geek

Trusted

Subscriber

#329256 12-May-2010 11:08

@sbiddle: Any speculation as to the motivation that would explain the change? "Childish games" is emotionally satisfying, but unlikely to be what really happened. :-)

Basically...who does the change benefit and from that is there any obvious connection to a defined lobby group and consequent relevant connections to anyone in government?

This government seem to be very crony-driven.....much more so (and more nakedly so) than the last one, based on the things I'm seeing. Buty their cronies in the media aren't calling them on it. You have to be reading blogs and forums to find the first-hand information. Or be directly affected by it (or know someone who is).

_____________________________________________________________________

I've been on Geekzone over 16 years..... Time flies....

pwner

419 posts

Ultimate Geek

Trusted

2degrees

#329268 12-May-2010 11:20

Linuxluver: @sbiddle: Any speculation as to the motivation that would explain the change? "Childish games" is emotionally satisfying, but unlikely to be what really happened. :-)

If you were the commission and tried to give Vodafone and Telecom another chance before regulating and then they go and put out a product that is unlikely to encourage the competition the commission desires i think i would be pretty annoyed as well.

Basically...who does the change benefit and from that is there any obvious connection to a defined lobby group and consequent relevant connections to anyone in government?

There are lobby groups for all sorts of things and they have been lobbying governments around the world since governments were established. i don't see any conspiracies here.

This government seem to be very crony-driven.....much more so (and more nakedly so) than the last one, based on the things I'm seeing. Buty their cronies in the media aren't calling them on it. You have to be reading blogs and forums to find the first-hand information. Or be directly affected by it (or know someone who is).

do you have your tin foil hat on? now you really are sounding like the new world order is in power. by crony driven do you mean driven by the voters? as in a democracy? i don't know where you have been but there is overwhelming public support to reduce the cost of mobile services, in respect to the MTR discussion specifically even many of those who oppose regulation in general have come out saying that this issue needs to get sorted and agree that regulation is the best way to get the results the commision want.

Any posts are personal comments and not that of my employer

sbiddle

30853 posts

Uber Geek

Retired Mod

Trusted

Biddle Corp

Lifetime subscriber

#329269 12-May-2010 11:21

JonC:
Whether or not MTR regulation is useful as a method of reducing on-net deals is a whole different question.

And it's a very key question - and the Commerce Commission's views on this matter need to be explained.

We now have all sorts of people quoting the UK as an example of how we should be regulating things and new cost models - yet the UK in effect pioneered on-net deals and all operators continue to offer deals such as free on-net calling on weekends.

Even if MTR's are 1c for voice there are compelling reasons to offer on-net deals because they become a marketing tool to attract customers. The price is not, and should not be the only factor when considering these deals.

The Commerce Commission's view is one that approaches retail price regulation on an industry. It's a sad day when competition is actually hampered by a regulator.

pwner

419 posts

Ultimate Geek

Trusted

2degrees

#329277 12-May-2010 11:41

sbiddle:
JonC:
Whether or not MTR regulation is useful as a method of reducing on-net deals is a whole different question.

And it's a very key question - and the Commerce Commission's views on this matter need to be explained.

We now have all sorts of people quoting the UK as an example of how we should be regulating things and new cost models - yet the UK in effect pioneered on-net deals and all operators continue to offer deals such as free on-net calling on weekends.

Even if MTR's are 1c for voice there are compelling reasons to offer on-net deals because they become a marketing tool to attract customers. The price is not, and should not be the only factor when considering these deals.

The Commerce Commission's view is one that approaches retail price regulation on an industry. It's a sad day when competition is actually hampered by a regulator.

The key point is that if the MTR = cost of terminating a call then the costs are equal for all networks. if for this example Vodafone is saying that they can create and terminate 200 minutes for $12 then they are obviously saying that through the $12 or other means they can recover the cost of creating and terminating those calls. If i was Telecom and i wanted to offer the same deal to vodafone customers then i have to be able to provide a business case that say i can still make money if i want to terminate 200 minutes to vodafone. given that 200minutes for $12 means each minute will cost 6c and assume the cost of creating a call is equal to the cost of terminating a call that is 3c for each leg. even if i as Telecom assume i can make some money from this subscriber from other means and choose to ignore their own internal costs of 3c then they cannot compete if the MTR is more than 6c which it currently is.

yes there will be on net pricing but because the MTRs are at cost then there is the oppertunity for networks to compete for customers of other networks rather than just match with their own on net pricing.

Any posts are personal comments and not that of my employer

walt12

324 posts

Ultimate Geek

#329282 12-May-2010 11:53

sbiddle:
JonC:
Whether or not MTR regulation is useful as a method of reducing on-net deals is a whole different question.

And it's a very key question - and the Commerce Commission's views on this matter need to be explained.

We now have all sorts of people quoting the UK as an example of how we should be regulating things and new cost models - yet the UK in effect pioneered on-net deals and all operators continue to offer deals such as free on-net calling on weekends.

Even if MTR's are 1c for voice there are compelling reasons to offer on-net deals because they become a marketing tool to attract customers. The price is not, and should not be the only factor when considering these deals.

The Commerce Commission's view is one that approaches retail price regulation on an industry. It's a sad day when competition is actually hampered by a regulator.

Hold on a second. Leaving aside the entire issue of MTRs, Vodafone's plan was anti-competitive simply because they chose to use their market size to lock-in an existing user base with on-net plans. From a market competition standpoint, that is anti-competitive.

The issue of MTRs is only relevant as a proxy for the cost of providing those services, and in the context that Vodafone's retail plan was lower than those wholesale costs, they left themselves wide-open to the anti-competition conclusion.

The bottom line is, we are only going to get lower mobile phone prices through competition between different providers in the marketplace. Anything that deters competition is undesireable.

And before you compare our market to the high prevalance of cheap on-net plans overseas, I'd point out that those are fairly mature markets in terms of the number of providers, with generally speaking, no dominant players. On that premise, the market can chose to price however it wants, and if cheap on-net is a symptom of a mature market then so be it. But I would argue that our market isn't mature nor has it been until recent times, particularly competitive.

JonC

425 posts

Ultimate Geek

#329290 12-May-2010 12:05

sbiddle:
JonC:
Whether or not MTR regulation is useful as a method of reducing on-net deals is a whole different question.

...

We now have all sorts of people quoting the UK as an example of how we should be regulating things and new cost models - yet the UK in effect pioneered on-net deals and all operators continue to offer deals such as free on-net calling on weekends.

...
.

The UK is an example where on-account deals that come with bundles of voice-call minutes are almost always "any network". Looking at vodafone UK's web-site they don't even mention on-net/off-net in the summary of plans because everyone there now assumes when they talk about minutes, it's to any network. The only place where they differentiate is when you're on-account and go over your alloted minutes per month.

Even pre-pay vodafone is a flat rate - no difference between on-net and off-net.

Can't find your example of free on-net calling on weekends - got a link?

wongtop

545 posts

Ultimate Geek

#329295 12-May-2010 12:12

I don't think the ComCom are saying that on-net rates are anti-competitive per se, but that they are when MTRs are above cost. This is because the combination of high MTRs and low on-net rates effectively "walls off" an incumbents customers from a new entrant.

When originally proposing acceptance of the offered MTRs, the ComCom accepted that they were above cost, but thought that the competition effects would be limited as the incumbents wouldn't significantly reduce their on-net rates. Vodafone's TALK addon blew this assumption out of the water.

oxnsox

1923 posts

Uber Geek

#329296 12-May-2010 12:13

I very much doubt that VF scored an own goal in this as they would have given the implications of releasing this plan option a lot of thought.

Firstly they have released it as a pre-pay option. This gives them the ability to remove it from the market almost as quickly as it arrived, yet reserves their ability to mould it into one of their on-account offerings. It also targets the restless pre-payers who ghost between all the Telcos, low and fickle ARPU's perhaps but a significant revenue bunch non the less. And at a time when TCNZ was still adjusting its clothes after pulling its pants back up.

Secondly it's possible that VF are testing the water with this. By seeing what reaction they get thru the Com-Com and its MVN partners.

If the Com-Com decides it must regulate MTR's and cite this as some form of justification, who are the winners?? My guess is that it would be back to TCNZ and VF as both will claim and counter claim till Com-Com rules and a process is decided.... such a simple ploy as this prepay plan would then inevitably have lead to delays in the process and these delays mean better incomes if we accept that MTR's are too high. (And who has the larger customer base to benefit more as the processes role along???)

And if Com-Com rules that VF is bad having released this plan will customers see VF or Com-Com as the spoiler here.... All in all it could be a win-win for them.

Of more concern is the MVN reaction. OK I haven't looked hard but I've seen no PR commentary there which indicates some acceptance.....

Personally I would have thought that any physical Network operator would want to keep the MVN players onside simple because they allow for vertizontal smudging of the market and increased market share.

At the end of the day for any shareholder owned Business it's about maximising the numbers on the bottom line. The Com-Com has to be careful that it is neither captured by 2Deg, TCNZ or VF in letting their plans and rouses succeed more one than the other. Maybe the bow on the Com-Com fiddle has simply changed hands.

1 | 2